The value premium does not statistically exist in the benchmark opportunity set of stocks, as represented by market indexes, whether observed at the top level of index returns or within the constituency of at least one major index. These findings potentially offer a better explanation
for why value managers do not systematically outperform growth managers, sometimes hypothesized because of decision error, costs and so on in earlier published work. Results also hint that prior research, which successfully observed a value premium in the constituency of the Russell 2000 index,
may have been specific to the data. Finally, results point to a seasonal value premium when comparing the first quarter of each calendar year to the fourth quarter of the prior calendar year. Such seasonality is consistent with portfolio window dressing and may hint at a path for value managers
to tactically capture the premium. Although selected value managers might be shown at times to successfully capture the premium, its absence in the benchmark opportunity set for these managers makes it quite unlikely that active value managers as a group will systematically outperform growth
managers over time – with consequences for asset allocation strategies and performance benchmarks that are constructed as a function of risk.